Friday, February 4, 2011

INDIAN GOVERNMENT TRANFERS 28000 CRORE FROM MSS ACCOUNTS

The Reserve Bank of India (RBI) said the government had transferred Rs 28,000 crore from the account maintained for the Market Stabilisation Scheme (MSS) to the normal cash account to fund expenditure. The decision to transfer the funds was taken after reviewing the cash position, the RBI said.

It may be recalled that the outstanding borrowing of the government from the RBI was Rs 40412 crore. This was more than the limit of Rs 20000 crore set under the agreement for Ways and Means Advances (WMA). After the transfer, the government is now backing within the WMA limit of Rs 20,000 crore. According to the agreement with the RBI, if the WMA borrowing stays above Rs 20,000 crore in April-September for 10 successive business days, the government will have to draw it down by issuing securities to the market.

While borrowing under WMA is at the repo rate, currently 4.75 per cent, any overdraft is at 2 per cent above repo, or 6.75 per cent. The RBI said based on the emerging fund requirements of the government, Rs 33,000 crore of MSS balances would be de-sequestered against the approved market borrowing programme or bought back in the fiscal year 2009-10. The MSS outstanding as on May 2, 2009, is Rs 42,773 crore (face value).

In a parallel operation, an equivalent amount of government securities in the MSS portfolio will now form part of the normal borrowing of the government of India for fiscal year 2009-10.